“Shootin’ The Bull”

End of Day Market Recap

by Christopher Swift

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5/3/2024

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Live Cattle:

In my opinion, further clues were presented at the end of the week via the unemployment report as to further weakening of the economy.  Stagflation has settled in with the Fed's Powell stating this week a "lack of further progress".  Friday's ISM report showed April having slower growth than March.  Economic reports over the past two weeks have reflected similar slowing.  Few other markets could hold a candle to the volatility seen this week in cattle futures trading.  Both fats and feeders produced a very wide price range for which was traversed multiple times through the week.  I expect this to continue for at least a little while longer as multiple aspects of the agenda are not only coming to fruition, they are believed to have changed negative beef production year over year to positive beef production.  Year over year of imported cattle was down slightly, but month over month, up considerably.  Hence leading me to expect a higher placement, even if less than 100%.  Beef imports soared with Australia releasing data this week that showed a 46.2% increase and falling just shy of a record set in 2015.  Some have grown weary of hearing about the dairy/cross. However, it is not only here to stay, but going to grow.  Throw in the consumer shift to more ground beef and high price of cuts, it appears rationing beef is starting to make an impact on the price of cattle.  

 

Feeder cattle are too high.  The spread between starting feeder and finished fat is miles apart, and some of that is with futures premium to cash.  Hence suggesting were the futures to move to levels of cash, it would produce even worse returns. Feed costs were expected to subside.  They did, but not to levels for which could offset the price paid for the feeder.  With this week's unexpected rally in corn, it just throws insult on to injury.  I think a portion of the cattle industry continues to expect the consumer to pay anything.  They are not, and the next shift in discretionary spending will be from hamburger to a competing protein.  Cattle feeders not privy to beef sales or a formula continue to see multiple month strings of losses and no light at the end of the tunnel.   The industry has moved in a manner that is believed rationing beef until a time frame will permit growth of the herd.  I think at best, we have stopped liquidation.  Going forward, I look to sustain the current herd level with expectations of expansion next year.  Every aspect of the agenda is believed in full swing with evidence of no further price advances in cattle suggesting the goal is being achieved.  As prices for cattle have continued to triangulate, I expect them to remain within those parameters into the early summer.  I will be more than anxious to see what the volume available is going to be on the video sales this summer. As well, with the cattle feeder nearing month 10, from the stupendous profits last year, and now 7 months of consecutive losses, I have to believe there is a different answer than buying an enormous negative margin in hopes of a massive price advance to just return the input costs.  

 

Here is what I expect next.  I don't expect cattle feeders to bid inventory sharply higher again.  I do expect that futures traders may provide some additional premium on futures contracts you can use.  As we saw on Thursday, basis can widen significantly in a day's time.  On Thursday, the basis widened by over $7.00 negative, providing producers opportunity in the futures market, found nowhere else. Note the triangulation of the futures price scale.  A test of the top will lead me to lay off risk for the remainder of this year on currently acquired inventory.  Were that to not materialize, a trade below the 4/12 trading day will suggest something has changed for the worse.  Lastly, note that the feeder cattle index is void of influence by the computer-generated futures trade.  While humans may be influenced by, and therefore indirectly impact the index with their decisions, the computers have no direct impact on physical cattle trading.  The understanding of basis will help you to decipher swings in the basis that may or may not be beneficial to you in your marketing.  However, you will at least be able to determine such.  I don't' expect this rally in corn, beans or wheat to be sustained.  I think it an opportunity to market inventory with November beans having traded above $12.00 on Friday and December corn above $4.80.  Farmers are urged to use this price increase to market some inventory and let someone else pay storage while you pay down debt or place on deposit for a return on capital.  

 

Diesel fuel has resumed its down trend and broken the 13 month long up trend.  Crude oil has dropped back under $80.00 and is believed creating a bear market. Gasoline is believed to have topped two weeks ago and is expected to soften.  Energy prices are expected to move lower.  Bonds are seemingly trying to move higher.  The currency issues with Japan are believed hampering a move higher with massive sales of US debt from Japan. If their issue will subside for a little while, the softening of the economy will be anticipated to push bonds higher.  Equities continue to attempt to re-inflate, but I find it difficult to see that with such a desire to deflate.  Nonetheless, it is becoming more obvious the Fed is having an impact on consumers, but not nearly as much on the inflation, believed due to exceptionally high government spending.  

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Feeder Cattle:

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Hogs:

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Corn:  

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Energy:

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Bonds:

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This is intended to be or is in the nature of a solicitation. An investment in futures contracts is speculative, involves a high degree of risk and is suitable only for persons who can assume the risk of loss in excess of the margin deposits.  You should carefully consider whether futures trading is appropriate for you in light of your investment experience, trading objectives, financial resources and other relevant circumstances. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.